April 20, 2011

PIMCO to Release ETF Version of Total Return Bond Fund

Total Return Exchange-Traded Fund would disclose portfolio holdings daily

PIMCO submitted a filing with the Securities and Exchange Commission on Wednesday seeking permission to roll out a similar version of its popular PIMCO Total Return Retail mutual fund in an exchange-traded fund wrapper.

As reported by Morningstar ETF Analyst Robert Goldsborough, PIMCO, which has been building out a footprint in the ETF space over the past several years, is proposing the actively managed PIMCO Total Return Exchange-Traded Fund, which would disclose portfolio holdings daily.

Bill Gross, PIMCO“When you first hear of something like this you think, ‘OK, actively managed ETFs have arrived,’ ” Goldsborough said in an interview with AdvisorOne. “No one can say they still need to be tested as a product class when someone like Bill Gross [left] gets in the game. This is big.”

While Goldsborough noted PIMCO already offers actively managed ETFs—PIMCO Intermediate Municipal Bond Strategy Fund and PIMCO Enhanced Short Maturity Strategy—he expects the new ETF to attract “a tremendous amount of investor interest."

“I don’t think anyone can argue Bill Gross isn't a fantastic investor,” Goldsborough said, noting he has been named Manager of the Year and Manager of the Decade by Morningstar. “He has made some contrarian bets against the bond market recently, and you don’t bet against someone like [Gross]. That said, I don’t think the ETF version will differ that dramatically from the mutual fund, but how its managed might, meaning it might trade after the mutual fund.”

As Goldsborough noted in his reporting, PIMCO did not disclose an expense ratio in Wednesday's filing. However, the filing does alert investors to the fact that the proposed ETF's investments and results "are not expected to be the same as those made by other funds for which PIMCO acts as an investment advisor, including funds with names, investment objectives and policies similar to" the proposed ETF.

Put another way, Goldsborough writes, PIMCO is telling investors that the proposed ETF may be managed differently or trade after the mutual fund makes its trades. As a result, those investors who want to jump ship from the mutual fund version in search of a possibly lower fee from the ETF version may see different results. This ETF is not a separate share class of the existing mutual fund with a similar name.

PIMCO spokesperson Mark Porterfield declined to comment when contacted by AdvisorOne, citing the SEC’s quiet period. 

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